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On 2 August, the Productivity Commission (PC) released a draft report entitled How to Assess the Competitiveness and Efficiency of the Superannuation System. This report follows the finding in the Financial System Inquiry that there is a lack of strong price-based competition driving efficiency, and that unless a review by 2020 finds the MySuper reforms have significantly improved competition and efficiency, new measures would be required (including changes to default rules).

The draft PC report starts this process, and seeks to agree the criteria for measurement of competition and efficiency. It also seeks to agree the system-level objectives as a reference point against which the outcomes of the system can be assessed.

The Government has already concluded that the overall objective of superannuation is to provide income in retirement to substitute or supplement the Age Pension. This draft report seeks to agree further system-level objectives that are specific to the principles of competition and efficiency, that link back to this overarching objective.

It proposes five such objectives for the superannuation system, against which the assessment criteria for the review of the system can be designed, being:

maximising net returns on member contributions and balances over the long term

meeting member preferences and needs, in relation to information, products and risk management, over the member’s lifetime

providing insurance that meets members’ needs at least cost

complementing a stable financial system and not impeding long-term improvements in efficiency and

driving efficient outcomes for members through competition.

Just as with the overall objective, these system-level objectives will influence the tax settings and other Government regulations affecting superannuation over time.

Most studies of efficiency in retirement systems in Australia, and around the world, have focused on matters that readily lend themselves to measurement (such as returns and fees). The system-wide approach in this draft report is unique in its breadth and is likely to be watched, by Governments and other industry participants, with interest around the world as it unfolds over the next few years, seeking to measure and increase efficiency and competition in their own systems.

In this light, it is imperative that the superannuation industry engage on how it (and individual funds) will be measured. Submissions on the draft report are due by 9 September 2016, and KPMG will be preparing one. If you have any thoughts on the draft, we would be pleased to hear them.

KPMG International Cooperative (“KPMG International”) is a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.